1/25/2014

McDonald's As A Metaphor For The Downside Of Raising The Minimum Wage

As I and others have written more than once, Democrats are waging war on the working men and women, specifically the younger workers – meaning teens – by pricing them out of the market by way of pushing for an increased minimum wage. They sell this 'war' by using the oft discredited claim that “no one can support a family making minimum wage” and “it will help lift the working poor out of poverty.” But their excuses ring hollow as every time the minimum wage has gone up the only thing that's increased has been unemployment.

To reiterate for those who still don't get it, the minimum wage was never meant to support a family. It was meant primarily for entry-level jobs, i.e. first jobs. A majority of those taking those jobs were teens, people with little or no experience in the working world. Nor was it meant as a way to lift people out of poverty. Jobs in general are the only way to lift anyone out of poverty. But that hasn't stopped those who believe otherwise. Of course many of those same people have no understanding of economics, meaning actual economics, not the long disproven Marxist/Socialist economics so often embraced by the Left.

One of the basic tenets of economics is that if the cost of some commodity goes up, demand for it will fall. Either the consumers – that's you and me – will not buy as much as they did in the past or they won't buy it at all. This same principle applies to labor. If the cost of labor goes up, specifically if the cost increase is artificial, there will be less demand for it. This is the principle that applies to the minimum wage. Every time the minimum wage goes up, the demand for labor goes down. A perfect example of that effect is amply demonstrated by the iconic American fast food chain, McDonalds.

McDonalds recently went on a hiring binge in the U.S., adding 62,000 employees to its roster*. The hiring picture doesn’t look quite so rosy for Europe, where the fast food chain is drafting 7,000 touch-screen kiosks to handle cashiering duties.

*The linked article dates back to 2011, but it illustrates the problem of artificially high wages – dce

What was the difference between the US and European hires? There were two: Minimum wages were (and are) are higher in Europe; and in some European countries labor laws make laying off un-needed employees extremely difficult. When the cost of hiring an employee reaches the point where it's cheaper to replace them with a machine, then the employee will be replaced by a machine. But that lesson has been ignored by the Left here in the US.

When the protests/strikes by fast food workers in the US took place this past fall, demanding $15 an hour for wages, little did many of those protesting realize that if they did get what they wanted that a lot of them would end up losing their jobs to a machine. Did they really think they were worth what are skilled-labor wages for unskilled labor jobs? Obviously they did. Did they believe that the owners of the various franchises would keep them on if they could easily be replaced by less expensive machines? Obviously they did. But if they got their way, they would have learned the lesson that a number of buffet restaurant employees in a casino did when they had their wages artificially raised by a labor arbitrator: the casino closed the restaurant because with a 140% increase in wages it went from being profitable to unprofitable and 175 employees lost their jobs. They priced themselves out of the market and the business owner pulled the plug.

Does this sound heartless? To the Left it does. To many of them the purpose of any business is to provide jobs, even if the business loses money. After all, aren't business owners merely greedy capitalists exploiting the working man (and woman)? Isn't it the duty of businesses to carry out the social programs created by the government? The answer to both question is not just “No”, but “Hell, no!”

Government doesn't create jobs, doesn't create businesses. Individuals do, in many cases in spite of overreaching and nonsensical government regulations. That they succeed at all is amazing. When government then interferes and skews the costs of doing business upwards it can turn a money making business into a money losing business, something that cannot be sustained before it finally goes bankrupt, a little side effect the Left purposely ignores.

To get back to the main subject, do the Democrats really think they will help anything by raising the minimum wage yet again, and particularly during an ongoing recession? (Yes, the recession is still here despite the government's assurances to the contrary. All one has to do is ask the average consumer about how well they're doing and how much they're spending, and a majority of them will tell you they're barely hanging on and have cut back on spending across the board. Certainly many retail stores can tell you consumers aren't spending as more of the big chain retailers have been closing stores as sales have fallen off.) Again the Dems will use their old and worn excuses to support the idea even with plenty of examples proving it won't work. They aren't trying to help out the working men and women. What the Democrats are trying to do is buy their votes with the empty promise of how a higher minimum wage will “fix things”. (What they also fail to mention is that about 2% of those still in the labor force, are paid minimum wage.)

If the Democrats get their way we will likely see a lot of our familiar fast-food chain restaurants go through a transformation as many of those at the front counter are replaced with ordering kiosks and some of the cooks out back are replaced by a robot.